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Our visiOn : Innovative Chemical Solutions For A Cleaner, Healthier, More Energy Efficient World.2 0 1 0
Annual Report
Stepan is a leading merchant producer of
surfactants that are the key ingredients
in consumer and industrial cleaning
compounds. Manufacturers of detergents,
shampoos, lotions, toothpastes and
cosmetics depend on surfactants to
achieve the foaming and cleaning
qualities of their products. Stepan also
produces fabric softeners, germicidal
quaternary compounds, and biodiesel.
Other applications include lubricating
ingredients, emulsifiers for spreading
of agricultural products, stabilizers for
latex, coatings and adhesives, oil field
drilling and enhanced oil field production.
Stepan produces other specialty products
that are often custom-made to meet
individual needs. These include flavors,
emulsifiers and solubilizers used in the
food and pharmaceutical industries. The
Company is also a principal supplier of
phthalic anhydride, a commodity chemical
intermediate that is used in polyester
resins, alkyd resins and plasticizers.
Polyols sold by the Company are used
in thermal insulation primarily by the
construction and refrigeration industries.
Headquartered in Northfield, Illinois,
Stepan utilizes a network of modern
production facilities located in North and
South America, Europe and Asia.
surfactants A surfactant is a surface
active agent that changes a liquid’s surface
tension. Surfactants are the basic cleaning
agent in consumer and industrial cleaning
products such as detergents for washing
clothes, dishes, carpets, floors, walls, as
well as shampoos, lotions, toothpastes
and cosmetics. Other applications include
fabric softeners, lubricating ingredients,
emulsifiers for spreading agricultural
products, and industrial applications such
as latex systems, plastics and composites.
Total surfactant sales represent
74 percent of Stepan’s 2010 sales or
$1,058,000,000 versus $972,647,000 in 2009.
The increase in sales was due to a four
percent increase in average selling prices
and a four percent increase in sales
volume. The rise in selling price reflected
higher raw material costs.
Domestic surfactant operations,
representing 57 percent of surfactants,
recognized a $18.7 million, or three percent,
increase in sales on a three percent
increase in average selling prices. Foreign
operations representing 43 percent of
surfactants, reported a $66.7 million, or
17 percent, increase in sales due to a ten
percent increase in sales volume and a four
percent increase in average selling prices.
POlymers The polymer product group
includes polyurethane polyols and phthalic
anhydride. Polyurethane polyols are used
in the manufacture of rigid foam for thermal
insulation in the construction industry.
Stepan’s polyols are also a base raw
material for coatings, adhesives, sealants
and elastomers. Phthalic anhydride is
used in polyester resins, alkyd resins, and
plasticizers for applications in construction
materials and components of automotive,
boating, and other consumer products.
Approximately 40 percent of the Company’s
phthalic anhydride is utilized internally in
the production of our polyol products.
Polymer sales represent 23 percent
of 2010 sales, or $330,416,000 versus
$260,770,000 in 2009, an increase of
27 percent. Higher sales volume coupled
with rising average selling prices led to
the higher net sales.
sPecialty PrOducts Specialty
products include flavors and emulsifiers
and solubilizers used in the food and
pharmaceutical industry. Sales for specialty
products for 2010 were $42,724,000 versus
$42,965,000 for 2009. Specialty products
represent three percent of net sales.
PrOductiOn facilities
Millsdale (Joliet), Illinois
Anaheim, California
Fieldsboro, New Jersey
Maywood, New Jersey
Winder, Georgia
Longford Mills, Ontario, Canada
Matamoros, Mexico
Manizales, Colombia
Vespasiano, Brazil
Stalybridge, United Kingdom
Voreppe (Grenoble), France
Wesseling (Cologne), Germany
Brzeg Dolny (Wroclaw), Poland
Singapore
Bauan (Batangas), Philippines (joint venture)
Nanjing, China (joint venture)
stePan at a glance
table Of cOntents
Shareholders Letter 3
Our Vision & Mission 6
Using Stepan Products 13
Five Year Summary 14
Quarterly Financial Data 15
Directors & Officers 16
Corporate Information 17
stePan cOmPany 1
(in thOusands, excePt Per share 2010 2009 % change 2008 % change and stOckhOlder amOunts) (2010 vs. (2009 vs. 2009) 2008)
Net sales $ 1,431,122 $ 1,276,382 +12 $ 1,600,130 –20
Net income attributable to Stepan Company 65,427 63,049 +4 37,172 +70
Per diluted share 5.90 5.84 +1 3.52 +66
Percent of net sales 4.6% 4.9% –6 2.3% +113
Percent return on average equity 20.5% 25.3% –19 17.9% +41
Depreciation and amortization 40,351 37,171 +9 36,928 +1
Capital expenditures 73,748 42,631 +73 49,778 –14
Dividends per common share 98.00¢ 90.00¢ +9 85.00¢ +6
Working capital 222,199 186,297 +19 116,288 +60
Current ratio 2.1 2.1 — 1.5 +40
Long-term debt, less current maturities 159,963 93,911 +70 104,725 –10
Total Stepan Company Stockholders’ equity 349,491 289,285 +21 208,144 +39
Total Stepan Company Stockholders’ equity per share 32.59 27.36 +19 20.27 +35
Average common shares outstanding (diluted) 11,090 10,796 +3 10,549 +2
Number of stockholders 1,348 1,333 +1 1,231 +8
Information in this annual report contains forward looking statements which are not historical facts. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, cash flow, prospects for our foreign operations, and certain global and regional economic conditions and probability of future acquisitions and new products, and factors detailed in the Company’s Securities and Exchange Commission filings.
new yOrk stOck exchange, symbOl scl 2010 2009
Stock price range $ 45.99–79.75 $ 22.80–67.98
Dividend (Common) $ 0.9800 $ 0.9000
Dividend (Preferred) $ 1.375 $ 1.375
Earnings per diluted share $ 5.90 $ 5.84
Return on equity 21% 25%
Book value $ 32.59 $ 27.36
Shares outstanding 10,105,748 9,948,215
financial highlights
stOck infOrmatiOn
2 stePan cOmPany
2010 PrOduct line sales (dollars in thousands)
Surfactants $1,057,982 Polymers $330,416 Specialty Products $42,724
2010 lOng lived assets (dollars in thousands)
United States $204,137 Others $161,422
2010 glObal sales (dollars in thousands)
United States $863,780 Others $567,342
2010 sales dOllar distributiOn (dollars in thousands)
Material $776,678 54% Other Expenses $331,026 23% Payroll & Fringes $181,752 13% Depreciation &
Amorti zation $40,351 3% Income Taxes $35,888 2% Net Income $65,427 5%
net incOme (dollars in thousands)Compound Annual Garowth Five Years +38%
net sales (dollars in thousands)Compound Annual Growth Five Years +6%
segment sales (dollars in thousands)
Surfactants Polymers Specialty Products
caPital exPenditures (dollars in thousands)Compound Annual Growth Five Years +10%
dividends Per cOmmOn share (dollars)Compound Annual Growth Five Years +5%
net incOme Per diluted cOmmOn share (dollars)Compound Annual GrowthFive Years +34%
equity Per share (dollars)Compound Annual Growth Five Years +14%
15,1
186,
670
65,4
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7
stePan cOmPany 3
In 2010, we are pleased to report our third consecutive
record income year, investments made to accelerate
long-term growth and progress in our innovation
portfolio. Although we will always have opportunities
to improve our operating effectiveness and efficiency,
in 2010 we transitioned from optimization to growth
within our strategy. Today we are clearly focused on
growth — profitable, global growth. Leveraging our
strong balance sheet, we made significant investments in
Brazil, Singapore, Germany and Poland to better position
the Company’s assets in markets that are growing and
to deliver long-term profit growth for the Company.
In 2010, net income increased four percent to
$65.4 million, or $5.90 per diluted share, led by volume
growth in our Polymer group and improved margins in
our Specialty Products group. Surfactant profitability was
slightly lower in 2010 due to reduced margins in Europe
and higher manufacturing costs in North America, mostly
due to a labor dispute that was resolved in August with a
new three-year agreement.
Net sales increased 12 percent to $1.4 billion, as volume
grew five percent. Higher selling prices due to rising raw
material costs contributed seven percent to the increase in
sales. Sales volume for Surfactants was up four percent,
despite some weakness in the fourth quarter. Polymers
volumes increased 14 percent, due to an improving
economy, higher global insulation standards and greater
penetration into new market areas. Specialty Products
delivered record results in 2010 and reinforced our intent to
grow in this value-added segment.
In 2010, the Surfactant group made investments
to diversify its product line and expand its franchise
geographically. We continued to support our ambitious
plans focusing on innovative solutions for Enhanced
Oil Recovery (EOR) and in developing new sustainable
surfactants. We have identified opportunities to generate
new sulfate volumes in the global laundry and personal
care markets. We will capture additional fabric softener and
amphoteric volumes. We have targeted growth in the
higher value-added functional markets, particularly
outside the United States.
With its large, diverse and growing consumer,
agricultural and oil field surfactant markets, Brazil
provides a substantial growth opportunity for Stepan.
Since our entry in the market several years ago through
an acquisition, we have steadily upgraded the plant’s
capabilities to meet a wide range of customer needs.
We have added neutralization capabilities to our
large sulfation unit during 2010 and have customer
commitments for most of the new capacity. We look
forward to further growth opportunities in this region.
A key part of our strategy is to build our surfactant
franchise in Asia. In July, we announced the acquisition
of the manufacturing assets of Peter Cremer’s 100,000
ton-per-year methyl ester plant located in Singapore.
Acquisition of this site provides Stepan an opportunity to
provide global customers with methyl esters and value-
added derivatives, a core building block of our specialty
surfactant business. We are currently installing fractionation
capability and production will begin April 2012 to supply
both customer and internal needs for fractionated methyl
esters made from tropical oils available in the region. This
development, along with planned methyl ester derivative
investments, will position Stepan for growth within the
region and globally.
In July, Stepan also announced increased ownership
in the Company’s joint venture, Stepan Philippines Inc.
(SPI), from 50 to 89 percent. SPI operates a surfactant
manufacturing plant producing laundry and cleaning
products, fabric softeners and functional surfactants for
both the Philippines and other Asian markets. During 2011,
we will invest capital to increase the fabric softener capacity
to support growing demand in the region.
Our joint venture with Nalco Holding Company, TIORCO,
was formed to market custom engineered chemical
solutions using core Stepan technologies to increase
dear fellOw sharehOlders:
4 stePan cOmPany
production of crude oil and gas from existing fields. We
are participating in a wide range of pilot floods around
the world and results from our first full scale injection are
encouraging. We believe the long-term potential of this joint
venture is significant. In 2011, with our partner, we will
continue to invest to scale this business.
Our Polymer group achieved record results in 2010,
despite downward pressure on margins and slow to
improve economies in many of its major markets.
Increased Polymer volumes were driven by greater demand
for polyols used in construction insulation. Increased
energy prices and global legislation to reduce fossil fuel
consumption and to lower carbon emissions should lead to
continued volume growth for our polyol business.
Europe, with its commitment to higher energy
conservation standards in building construction, is a
strong growth driver for our polyol business. A second
polyol reactor at our Wesseling, Germany plant is
scheduled for completion and start up in April 2011.
Phase one of this project will add 38,000 metric tons
of capacity to meet growing market demands. In
July of 2010, Stepan improved its capability to serve
customers in Central and Eastern Europe through
the acquisition of Alfa Systems’ plant, which includes
25,000 metric tons of polyester polyol capacity and
15,000 metric tons of blend capacity. The plant, located
outside of Wroclaw, Poland, manufactures aromatic
polyester polyols made from recycled polyethylene
terephthalate (PET), a new technology for Stepan,
as well as other specialty polyester polyols.
Execution within our innovation portfolio
improved in 2010. Sales of value-added technologies,
including enhanced oil recovery surfactants, adjuvants
that enhance the efficacy of glyphosate and new
applications for our polyols, flexible polyurethane
foam, as well as the coatings, adhesives, sealants and
elastomers (C.A.S.E.) markets have begun and should
increase significantly over the next three years.
In October of 2010, Stepan announced a joint
development agreement with Bolingbrook, Illinois-
based Elevance Renewable Sciences to evaluate and
commercialize novel surfactants, antimicrobials and
polyurethane polyols. Elevance will provide feedstocks
to Stepan made from natural oil utilizing Nobel Prize-
winning metathesis technology. Stepan will derivitize
it with our core chemistries including sulfonation,
esterification and quaternization. Our technical
program will support Stepan’s ongoing commitment
to provide unique solutions that address customer
sustainability objectives — renewable feedstocks,
greater compaction and reduced energy consumption.
Our belief that investing in our people is key to
achieving our goals and ambitions is captured in the
concept of “People First.” Through our integrated line up
of performance management, leadership development,
succession planning, coaching and skills development
programs, we will continue to raise the bar higher with
regard to our performance.
Specifically our number one priority is to improve the
health and safety of our employees. Our OSHA Recordable
Rate, a key metric of the number and severity of safety
F. QUINN STEPAN Chairman
F. QUINN STEPAN, Jr. President and Chief Executive Officer
stePan cOmPany 5
incidents, reflects that commitment and dropped to 1.05
in 2010 from 1.34 in 2009. However, we are not satisfied
with that performance and all employees are committed
to lowering the rate further and becoming a benchmark
for safety within the chemical industry. This year, we
established Stepan’s President’s Award, which will be
presented to any Stepan facility that meets seven specific
safety and environmental performance criteria including
OSHA injury rate, total incident rate and environmental
releases. We are very pleased that our facilities in Colombia,
Mexico, and the Philippines all earned this first-time award.
Although we are focused on growth, we will not abandon
our pursuit of operational excellence and cost-out. In 2010,
our Continuous Improvement Program delivered global
productivity savings of $11.9 million.
In January of 2010, F. Quinn Stepan was honored
with the Elva Walker Spillane Distinguished Service
Award by The American Cleaning Institute (ACI) for
exceptional service and outstanding leadership to the
ACI and the industries it represents. In presenting the
award, the ACI president noted that Quinn has been
a “major force in the chemical industry for decades”
and that under his leadership the ACI increased its
effectiveness by leveraging its focus on science in an
expanded advocacy role.
Stepan announced in December that research
associate Joseph Rongione was the recipient of
Alfred C. Stepan, Jr. Award for Innovation for
the innovative process he developed for reducing
byproducts and cycle times while improving yields
within the Company’s Specialty Products business.
In May of 2011, Thomas F. Grojean, Chief Executive
Officer of Grojean Transportation, a nationwide truckload
freight carrier, will retire from Stepan’s Board of Directors
after 34 years of service. During his long tenure with
the Company, Tom has been a guiding force as Stepan
grew from a $109 million North American operation to
a $1.4 billion global enterprise. His counsel, energy and
commitment to the Company have been invaluable. We are
deeply grateful for his many contributions and wish him the
best in his future endeavors.
In October, the Board of Directors declared an
8.3 percent increase in the Company’s quarterly cash
dividend to $.26 per share, the forty-third consecutive
annual dividend increase.
Stepan updated its vision and mission in 2010. We
recognized that in many ways Stepan had outgrown its
previous mission, which was developed before global
growth and expansion transformed the Company. We sought
input from all parts of the Company to develop a concise
and compelling vision and mission statement centered
on the Company’s core values. The new vision, which is
the theme of this annual report, is both aspirational and
reflective of the core purpose and values that have served
us well over our history. A special section follows our
letter that describes in more detail the process we used to
develop the new vision and how we are living it today.
We enter 2011 with confidence and optimism about
the ability of your Stepan team to deliver profitable growth
from the investments we are making. We thank you, our
shareholders, for your investment in Stepan Company and
the opportunity to serve you.
F. QUINN STEPAN Chairman
F. QUINN STEPAN, Jr. President and Chief Executive Officer
CUSTOMER FOCUS We will be a preferred global partner in
our markets and technologies by providing innovative, cost-
effective products and services that delight our customers.
We will sustain long-term relationships with our customers
built on trust and transparency.
PEOPLE FIRST Investment in our people is the key to
achieving our goals and ambitions. We are committed to
developing, recognizing and respecting our people, which
will enable all of our relationships to thrive and flourish. Our
interactions will be characterized by openness, teamwork and
mutual respect. As we continue to grow, we will maintain the
culture that has made Stepan Company a preferred place to work.
INTEGRITY We earn the right to operate every day. Our
actions must always meet the highest ethical and legal
standards. We will engage in and support only those
activities that are lawful, safe, environmentally sound
and respectful of the needs of our employees and the
communities in which we operate. We will become the leader
in safety and the benchmark for our industry.
GROWTH & INNOVATION We will drive profitable growth
through innovation. We will anticipate market trends and
needs. We will use our creativity, expertise and discipline
to provide practical solutions that deliver value to our
customers.
CONTINUOUS IMPROVEMENT We will constantly strive
to grow and prosper through continuous improvement.
We will relentlessly seek to increase the effectiveness and
productivity of our employees and our facilities to meet our
customer needs. These principles will maintain our strength
and independence while increasing the value of our Company
for all stakeholders.
SUSTAINABILITY We embrace a broad view of
sustainability and are committed to delivering outstanding,
sustainable value to all our stakeholders, to increasing our
efficient use of resources and minimizing our footprint and
working as innovative partners with our customers in pursuit
of their sustainability goals.
Our visiOn
Innovative Chemical Solutions For A Cleaner, Healthier, More Energy Efficient World.
the missiOn of the Stepan Company is to meet the requirements of all our
stakeholders — customers, stockholders, employees and the communities in which
we operate. With a keen focus on our customers, we will drive growth, deliver
innovation and achieve a strong return for our shareholders by becoming the leading
manufacturer of surfactants and polyester polyols in the world and a leading supplier
of chemical specialties. In fulfilling this mission, Stepan will be guided by the following
principles and values:
6 stePan cOmPany
stePan cOmPany 7
Discovering Our Global Vision
A clearly articulated vision and mission are critical
elements that guide a company’s growth strategies,
drive performance, align employees and foster greater
employee engagement. In late 2009, Stepan launched an
initiative to update our vision statement while ensuring it
still reflected the Company’s core values. We decided to
re-evaluate our mission statement in view of the global
diversification and growth that has transformed the
Company in the past decade.
Using a methodology called Appreciative Inquiry
(AI), which focuses on the strengths and successes of
an organization and its employees’ positive personal
experiences, a cross-functional team sought input
from people at every level in Stepan locations around
the world. We included as many voices as possible in
collaboratively creating a vision that would resonate with
all our stakeholders. This information gathering stage was
followed by a two-day summit of sixty employees to draft
a vision statement. The vision and mission statement were
then reviewed with top management and the Board and
subsequently rolled out to all employees in early 2010.
Our Vision: Innovative Chemical Solutions for a Cleaner,
Healthier, More Energy Efficient World.
Each word of Stepan’s new vision statement was
carefully chosen to communicate something essential
about the Company:
• innOvative: We believe our ability to innovate and
invent will provide opportunities to improve our
product mix and determine our long-term success.
• chemical: We are a chemical company. We embrace
our heritage and will use chemistry to grow
our Company.
• sOlutiOns: Customers provide opportunities to grow.
We offer solutions to them that deliver a competitive
advantage, accelerating our top and bottom line growth.
• cleaner: Is our major business today. We will help
our customers find more efficient and effective ways
to clean while reducing our own and our customer’s
environmental footprint.
• healthier: Is part of our business today. We make
disinfectants to kill germs and nutraceuticals for the food
industry. “Healthier” is also aspirational as we plan to
grow our Specialty Products business.
• mOre energy efficient: We continually seek innovative,
energy efficient solutions for our customers. Stepan is a
leader in polyols used for insulation — one of the most
effective forms of energy conservation. Our surfactants
are used to enhance recovery of oil and gas and to create
laundry and cleaning products that are more highly
concentrated and/or perform better in cold water. We also
increasingly use renewable feedstocks across all three of
our business segments.
The pages that follow look at how each principle of our
new mission comes alive every day as Stepan employees
strive to meet and exceed the requirements of all our
stakeholders — customers, stockholders, employees and the
communities in which we operate.
Our visiOn
8 stePan cOmPany
One of the hallmarks of Stepan is the long-term
relationships we have developed with our customers
that are built on trust and transparency. Many of
these relationships span decades and have grown and
deepened in the face of economic challenges. As our
customers drive to achieve greater global efficiencies,
they are looking to partner with a select number of
suppliers that have the expertise and scale to meet their
requirements around the world. To help strengthen
our position as a preferred global partner, Stepan in
2010 made two strategic acquisitions that expand our
ability to serve customers in a timely, cost effective
manner in some of world’s fastest growing markets.
As a next step in building our surfactant franchise
in Asia, Stepan acquired a 100,000 ton-per-year methyl
ester plant in Singapore in mid-2010. Methyl esters have
long been a core building block of Stepan’s surfactant
business. In North America, our portfolio of value added
methyl ester derivatives has been an important part of our
surfactant growth because of our integrated production.
In Singapore, we plan to install methyl ester fractionation
capability on the site in order to supply our customers
and our own internal surfactant needs with fractionated
methyl esters made from tropical oils. With planned
additional investments, our Singapore site will become a
global manufacturing hub capable of meeting the needs of
customers throughout the region and the world.
In order to serve customers with polyol requirements
more cost effectively in Central and Eastern Europe, Stepan
acquired a new plant just outside of Wroclaw, Poland. The
Stepan’s sales team plays an integral role in the Company’s focus on profitable global growth. Pictured here are members of Stepan’s international sales team, including (from left) rene Brabender, general manager Sales and Marketing — Canada, Catherine remy, sales director Europe, Eduardo Couto, sales manager Brazil, Marcelo rubio, commercial director — Andean and Caribbean, Tom Giese, commercial director, Asia — Pacific, Juan Agraz, commercial director, Mexico and Central America, and Mark Mydlach, vice president, Surfactant Sales.
Through its acquisition of a 100,000 ton-per-year methyl ester plant in Singapore, Stepan continues to expand its surfactant franchise in Asia. After installation of fractionation capability, the plant will supply methyl esters to meet both customers’ and internal Company needs.
custOmer fOcus:
Becoming a Preferred Global Partner
stePan cOmPany 9
facility has 25,000 metric tons of polyester polyol capacity
and 15,000 metric tons of blending capacity. The plant,
which was designed to manufacture aromatic polyester
polyols, including those from recycled raw materials, brings
new technology and opportunities to Stepan. With its
state-of-the-art flexible equipment, experienced workforce
and location in growing Eastern Europe, this plant is an
important addition to Stepan’s global network of polyol
manufacturing facilities.
These new facilities, together with our recent addition
of neutralization capabilities to our plant in Brazil,
increased ownership in our joint venture surfactant plant
in the Philippines and the expansion of our polyol plant in
Germany, position Stepan as a strong global partner for its
multinational customer base.
We believe that developing, recognizing and respecting
our people will enable us to accomplish our collective goals.
One element of our “People First” commitment is a focus
on employee engagement, which was exemplified by our
recent vision and mission statement initiative. Almost a
third of the Company’s employees volunteered their time
to participate in the information gathering stage of the
project — testament to the passion and commitment our
people feel for their work and their Company. The process
helped us to discover the forces and factors that drive our
success and underlie our great potential. The data show
that our ongoing investment in people, focus on teamwork
and culture that is characterized by openness and mutual
respect, are qualities that employees around the world
believe make Stepan a preferred place to work.
Now that the vision and new mission statement have
been developed, next we will actively engage all of our
stakeholders to realize our vision.
Stepan earns the right to operate every day. That means
we never take for granted that our actions must adhere to
the highest ethical and legal standards. We only engage in
and support activities that are lawful, safe, environmentally
sound and respectful of our employees and the communities
in which we operate.
Our relentless attention to safety is perhaps the most
visible way we show our commitment to integrity in our
operations. Through focused and sustained effort, we have
consistently improved our OSHA Recordable Rate, which
A group of sixty representatives from locations across Stepan engaged in an intensive two-day summit to draft a compelling and thought-provoking global vision statement. Visioning team members (from left) Matt Eaken, vice president and corporate controller, David Horan, senior North American Supply Chain planning and global inventory manager, Gary Washington, operator, at a planning session in the Millsdale plant.
In 2010, Stepan acquired a new polyol plant just outside of Wroclaw, Poland. With its state-of-the-art equipment, experienced workforce and location in fast growing Eastern Europe, the new plant enhances Stepan’s ability to serve customers in timely and cost-effective ways.
PeOPle first:
Investing in Our People
integrity:
Earning the Right to Operate
10 stePan cOmPany
measures the number and severity of safety incidents. We
are pleased with our progress, but not satisfied. Our goal is
to achieve a significantly lower rate and establish Stepan
as a safety leader in the chemical industry.
As a way to highlight our commitment to safe
operations, Stepan this year created the President’s
Award, which is presented to a Stepan facility that
meets seven specific safety and environmental
performance criteria including OSHA injury rate,
total incident rate and environmental releases.
This year, our plants in Colombia, Mexico and the
Philippines earned the first ever President’s Award.
An integral part of Stepan’s surfactant strategy is
to deliver organic growth through innovation that is
synergistic with the Company’s core capabilities, platforms
and markets. Anticipating market trends and needs is
crucial for this approach to work. We constantly evaluate
how we can apply existing technologies in new adjacent
markets or introduce a new technology to a market we
understand well. Our work using surfactants for enhanced
oil recovery (EOR) is an example of our ability to apply core
technologies to create new solutions. TIORCO, our EOR joint
venture with Nalco Holding Company, completed the first
full scale injection of a customer’s oil field in 2010 and the
results are encouraging.
Stepan is also focusing marketing and research
resources to extend product lines into new market
segments. Our innovative new surfactant for use with
glyphosate enhances the effectiveness of glyphosate, the
world’s largest agricultural active.
Customer demand for biorenewable feedstocks is
another market trend propelling innovation at Stepan. In
2010, the Company announced an agreement with Elevance
Renewable Sciences, Inc. to evaluate and commercialize
“new to the world” surfactants, antimicrobials and
grOwth & innOvatiOn:
Anticipating Market Trends
As part of its continuing efforts to enhance safe and secure operations globally, Stepan created the President’s Award, which will be presented to any Stepan facility that meets seven specific safety and environmental performance criteria. President and CEO Quinn Stepan presented the award to team members at the Company’s plant in Manizales, Colombia.
stePan cOmPany 11
polyurethane polyols for a variety of applications in the
consumer and functional markets. Elevance uses a Nobel
Prize-winning technology called metathesis to provide
feedstocks that will allow Stepan to create high performance
ingredients for our core markets, including detergents,
personal care products, and agricultural products. Our
goal is to develop new biorenewable technologies with
performance benefits to meet customers’ growth initiatives
and sustainability goals.
In 2010, Stepan’s Continuous Improvement Program
delivered global productivity savings of $11.9 million. Our
team of Six Sigma specialists, process technologists and
production engineers work on a host of specific projects to
reduce operating cost, eliminate waste, increase unit output
and improve product quality. Each Stepan facility selects a
range of projects to tackle that have the greatest potential
for benefit to the business.
In 2010, a significant breakthrough was achieved at
our Maywood, New Jersey medium chain triglyceride
(MCT) production unit. The 8K reactor improvement team
led by research associate Joseph Rongione developed
new process technology that provided a 25 percent
improvement in cycle times. The additional capacity
generated from the reduced cycle time was quickly
employed to meet greater customer demand. For his
leadership and technology improvements, Joe received
the Alfred C. Stepan, Jr. Award for Innovation which
recognizes creativity and innovative thinking that results
in a significant contribution to Stepan’s operating results.
Joe rongione, research associate at Stepan’s Maywood, New Jersey, plant received the Alfred C. Stepan, Jr. Award for Innovation in 2010. Joe led the 8K reactor improvement team that developed new process technology that provided a 25 percent improvement to cycle times and significantly contributed to Stepan’s operating results.
cOntinuOus imPrOvement:
Relentlessly Seeking to Improve
A key element of Stepan’s growth strategy is to deliver organic growth through innovation that is synergistic with the Company’s core capabilities, platforms and markets. Pictured here are innovation team members (from left) randy Bernhardt, research and development director and Arnold Castro, business manager Global Ag Products.
GrOWTH PrOJECT POrTFOLIO
12 stePan cOmPany
Stepan invests significant capital and technical
resources in environmental improvements throughout
its global operations. The early focus of Stepan’s
sustainability program has been energy efficiency
improvements, water use reduction or recovery, and
waste elimination. In 2010, more than $7 million
was invested in energy reduction projects, including
installation in the Company’s Millsdale, Illinois, plant
of a modern, high-efficiency steam boiler and the
upgrading of large process air blowers in our phthalic
anhydride production unit that utilize significantly less
electricity. These efforts combined will reduce energy
usage by more than 14 million kilowatts annually.
Our new Illinois warehouse, completed in the fourth
quarter of 2010, is designed with the latest industrial
building efficiency systems, including a roof insulated with
a product containing a Stepan polyol and occupant sensitive
lighting and temperature controls. We implemented water
recovery and reuse programs that added systems and
controls for condensate recovery and reuse of wash water.
Waste reduction initiatives, including process control
strategy changes and improved processing equipment,
have resulted in a 24 percent decline in Stepan’s North
American process generated waste streams since 2005.
In 2010, Stepan invested more than $7 million in energy reduction projects, including upgrades to large process air blowers that will use significantly less electricity in the Company’s Millsdale, Illinois, phthalic anhydride production unit. Combined efforts will reduce energy usage by more than 14 million kilowatts annually. On site with the new equipment are (from left) Dennis Maskel, production superintendent and Carrie Dynis, global Polymers operations leader.
sustainability:
Delivering Sustainable Value
stePan cOmPany 13
cOnsumer and industrial PrOducts
Laundry & CleaningAll-purpose cleaners Bathroom cleaners Carpet steam extraction Carpet shampoos Car wash detergents Car wash spray wax emulsifiers Cooling tower biocides Dish washing detergents Disinfectants and sanitizers Drain cleaners Dry cleaning detergents Fabric softener dryer sheets Fine fabric washes General disinfectants Hand and dish disinfection Hard surface cleaners Hard surface disinfection for food preparation areas Hospital disinfectants and sanitizers Industrial floor cleaners Industrial food processing disinfection Laundry, commercial and textile softeners Laundry detergents Laundry pre-spotters Laundry sanitization Metal cleaning emulsifiers Rug shampoos Sanitizers Sanitization and deodorization of bath and laundry areas Solvent degreasers Swimming pool and hot tub algicides, slimicides and fungicides Upholstery shampoos Window cleaners
Personal Care After-shave lotions Anti-bacterial handsoaps Anti-dandruff shampoos Baby shampoos Bar soaps Bath oils Bath products Body washes Bubble baths Cleansing creams Combo bars Conditioning shampoos Dentifrices Facial preparations Glosses Hair conditioners Hair rinses Leave-on conditioners
Liquid hand soaps Make-up preparations Medicated ointments Moisturizers Mousses Ointments Personal care cleansing preparations Pre-shave lotions Shampoos Shaving creams Skin creams Skin lotions Sunscreen products Suppositories Styling aids Syndet bars
Industrial Surfactants Adhesives Architectural coatings Biodiesel fuels Carpet backing Caulk Concrete Drawing and forming compounds Drilling foamers Drywall joint compound Dust control foam Engine lubricants Enhanced oil recovery Firefighting foam Foam markers Gypsum board Herbicides, fungicides, insecticides Industrial paints Inks Landfill cover Leather finishes Non-woven binders Oil emulsifiers Oil well bactericides Oil well corrosion inhibitors Packaging Paper coatings Paper de-inking Pesticide adjuvants Pigments Plastics Sealants Scouring, levelling, coupling, wetting, bleaching and dyeing assistants Textile coatings Textile lubricants Vinyl flooring
Polymers Appliances: Refriger ators, freezers, water heaters Automotive: Upholstery, interior trim, crash pads, floor mats, hoses, refrigerated trailer insulation, RV panels Bath fixtures: Bathtubs, shower stalls, lavatories, spas, laundry tubs, tub and spa insulation Construction: Resilient floors, wall coverings, pool liners, FRP panels, swimming
pools, concrete forming pans, gutter/downspouts, cooling towers, mobile homes, rigid insulation, insulated pipes Elastomers: Thermobreaks for metal thresholds and windows, engineering plastics Electrical: Wire and cable insulation, electrical tape, transmission hardware, circuit boards, switch gear housing, potting compounds Furniture: Adhesives, flexible cushions Household goods: Footwear, toys, luggage, book bindings, garden hoses, outerwear, tablecloths, shower curtains, upholstery Insulations: Residential sheathing, commercial/industrial roofing, building panels, spray-applied polyure thane foam insulation, decorative molded parts and displays Marine: Boat hulls, deck hardware, floatation, motor covers, mooring buoys Medical: Intravenous bags, medical tubing, prostheses, implants, pharmaceutical coatings Military/aerospace: Encapsula tion, electrical potting, cavity fill, cryogenic insulation, floatation Packaging: Meat and produce film, bottles and containers, packaging foam Paints/coatings: Industrial and residential paints, polyure-thane coatings, traffic paints Recreation: Picnic cooler insulation, bowling balls, sporting equipment, taxidermy Sealants: Expanding sealants in a can, two-component polyure-thanes
Food & PharmaceuticalIngredients Confections Energy bars and drinks Flavors Nutritional beverages Pharma ceutical excipients
using stePan PrOducts
14 stePan cOmPany
(in thOusands, excePt Per share and emPlOyee data) 2010 2009 2008 2007 2006
For the Year
Net sales $ 1,431,122 $ 1,276,382 $ 1,600,130 $ 1,329,901 $ 1,172,583
Operating income 107,897 104,888 70,680 35,095 15,853
Percent of net sales 7.5% 8.2% 4.4% 2.6% 1.4%
Income before provision for income taxes 101,479 97,131 54,878 23,715 7,389
Percent of net sales 7.1% 7.6% 3.4% 1.8% 0.6%
Provision for income taxes 35,888 34,028 17,615 8,687 900
Net income attributable to Stepan Company 65,427 63,049 37,172 15,118 6,670
Per diluted share (a) 5.90 5.84 3.52 1.50 0.63
Percent of net sales 4.6% 4.9% 2.3% 1.1% 0.6%
Percent to total Stepan Company stockholders’ equity (b) 20.5% 25.3% 17.9% 7.8% 3.8%
Percent return on invested capital (c) 14.62% 14.41% 8.21% 5.92% 4.51%
Cash dividends paid 10,570 9,557 8,863 8,431 8,149
Per common share 0.9800 0.9000 0.8500 0.8250 0.8050
Depreciation and amortization 40,351 37,171 36,928 37,176 38,384
Capital expenditures 73,748 42,631 49,778 39,815 45,970
Weighted-average common shares outstanding (diluted) 11,090 10,796 10,549 10,113 9,284
As of Year End
Working Capital $ 222,199 $ 186,297 $ 116,288 $ 92,954 $ 87,974
Current Ratio 2.1 2.1 1.5 1.5 1.5
Property, Plant and Equipment, net 353,585 248,618 238,166 234,062 225,604
Total Assets 811,431 634,203 611,897 573,185 546,055
Long-term Debt Obligations 159,963 93,911 104,725 96,939 107,403
Total Stepan Company Stockholders’ Equity 349,491 289,285 208,144 206,051 180,786
Per share (d) 32.59 27.36 20.27 20.69 18.33
Number of Employees 1,768 1,594 1,578 1,525 1,528
(a) Based on weighted-average number of common shares outstanding during the year. (b) Based on average equity. (c) Defined as net operating profit after taxes divided by invested capital. (d) Based on common shares and the assumed conversion of the convertible preferred shares outstanding at year end.
The selected financial data included herein has not been audited. The information was derived from the Company’s audited financial statements for the respective years, which were presented in accordance with accounting principles generally accepted in the United States of America and which were audited in accordance with the standards of the United States Public Company Accounting Oversight Board. Copies of the full consolidated financial statements and of the independent registered public accountants’ report that expressed an unqualified opinion (dated February 28, 2011) are included in the Company’s 2010 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission, which is available on request or via Web site at www.stepan.com.
five year summary
stePan cOmPany 15
(dOllars in thOusands, excePt Per share data) first secOnd third fOurth year
2010
Net Sales $ 337,030 $ 366,504 $ 366,800 $ 360,788 $1,431,122
Gross Profit 63,552 63,478 58,429 50,519 235,978
Interest, net (1,256) (1,510) (2,004) (1,571) (6,341)
Income Before Income Taxes 31,606 26,387 31,280 12,206 101,479
Net Income 20,681 17,069 19,223 8,618 65,591
Net Income Attributable to Stepan Company 20,660 17,046 19,230 8,491 65,427
Per Diluted Share 1.88 1.53 1.73 0.76 5.90
2009
Net Sales $ 318,143 $ 321,199 $ 326,225 $ 310,815 $ 1,276,382
Gross Profit 48,695 65,658 68,931 49,819 233,103
Interest, net (1,842) (1,585) (1,508) (1,336) (6,271)
Income Before Income Taxes 23,251 30,627 30,431 12,822 97,131
Net Income 15,158 19,560 19,588 8,797 63,103
Net Income Attributable to Stepan Company 15,153 19,584 19,545 8,767 63,049
Per Diluted Share 1.43 1.83 1.80 0.80 5.84
stOck Price range dividends Paid Per share Per cOmmOn share
quarter 2010 high 2010 lOw 2009 high 2009 lOw 2010 2009
First $ 67.67 $ 45.99 $ 48.41 $ 22.80 $ 0.24 $ 0.22
Second $ 79.75 $ 54.95 $ 45.99 $ 26.34 $ 0.24 $ 0.22
Third $ 72.17 $ 53.55 $ 62.98 $ 39.74 $ 0.24 $ 0.22
Fourth $ 76.99 $ 59.00 $ 67.98 $ 54.23 $ 0.26 $ 0.24
Year $ 79.75 $ 45.99 $ 67.98 $ 22.80 $ 0.98 $ 0.90
quarterly financial data
quarterly stOck data
16 stePan cOmPany
F. Quinn Stepan Chairman
F. Quinn Stepan, Jr. President and Chief Executive Officer
Michael r. Boyce Chairman and Chief Executive Officer, PQ Corporation, an industrial chemicals company, Malvern, Pennsylvania
Thomas F. GrojeanChairman and Chief Executive Officer, Grojean Transportation, Inc., a nationwide truckload freight carrier, Mendota Heights, Minnesota
Gary E. Hendrickson President and Chief Operating Officer, The Valspar Corporation, a global paints and coatings manufacturer, Minneapolis, Minnesota
Gregory E. LawtonFormer President and Chief Executive Officer, Johnson Diversey, Inc., a global provider of cleaning and hygiene solutions to the institutional and industrial marketplace, Sturtevant, Wisconsin
Edward J. WehmerPresident and Chief Executive Officer, Wintrust Financial Corporation, a financial services company, Lake Forest, Illinois
cOrPOrate directOrs & Officers
F. Quinn StepanChairman
F. Quinn Stepan, Jr.President and Chief Executive Officer
James E. HurlbuttVice President and Chief Financial Officer
Scott C. MasonVice President, Supply Chain
Frank PacholecVice President, Research and Development and Corporate Sustainability Officer
Gregory ServatiusVice President, Human Resources
John V. VenegoniVice President and General Manager, Surfactants
robert J. WoodVice President and General Manager, Polymers
H. Edward WynnVice President, General Counsel and Secretary
Kathleen O. SherlockAssistant General Counsel and Assistant Secretary
Officers
bOard Of directOrs
stePan cOmPany 17
Independent registered Public Accounting Firm Deloitte & Touche LLP, Chicago, Illinois
Transfer Agent and registrarComputershare Investor Services, LLC2 North LaSalle St., Chicago, Illinois 60602 312.588.4991 Fax 312.293.4943 Contact the Registrar and Transfer Agent concerning stock certificates, dividend checks, transfer of ownership, or other matters pertaining to your stock account.
Stock ListingNew York Stock Exchange: SCL and SCLPRChicago Stock Exchange: SCL and SCLPR
Investor relationsJames E. Hurlbutt847.446.7500
Form 10–KCopies of the Company’s annual report on Form 10-K, filed with the Securities and Exchange Commission, will be available without charge to stockholders and interested parties upon written request to the Secretary of the Company or may be obtained on our Web site at www.stepan.com
Annual MeetingThe 2011 Annual Meeting for the Stockholders of the Company will be held at 9:00 a.m., Tuesday, May 3, 2011, at the Company’s headquarters in Northfield, Illinois.
Corporate Governance The Nominating and Corporate Governance Committee of the Board of Directors has established a committee charter and a Code of Conduct. These documents are provided on Stepan’s Web site at www.stepan.com within the Investor Relations section of the site. At the same Web site location, Stepan provides an Ethics Hotline phone number and Web site that allows employees, shareholders and other interested parties to communicate with the Company’s management or Audit Committee (on an anonymous basis, if desired) through an independent third party hotline.
FINANCE
Matthew J. EakenVice President and Corporate Controller
INTErNATIONAL
Charles A. BrownVice President, Latin America
John HallVice President & General Manager, Stepan Asia – Pacific Surfactants
Anthony MartinVice President, Europe
roger StubbsVice President, European Polymers
LOGISTICS
Debra A. StefaniakVice President, Global Logistics
MANUFACTUrING
robert S. MangoldVice President, Manufacturing & Engineering
Kyle MontgomeryVice President, Plant Operations, The Americas
PUrCHASING
Arthur W. MergnerVice President, Procurement
richard H. Wehman, Jr.Vice President, Strategic Purchasing
rESEArCH &DEVELOPMENT
Matthew I. LevinsonVice President, Global Process Development
SPECIALTY PrODUCTS
James M. ButterwickVice President, Specialty Products
SUrFACTANTS
Scott r. BehrensVice President, Business Management
Jeffrey E. GrahnVice President, Product Management
Mark F. MydlachVice President, Surfactant Sales
James S. PallVice President, Corporate Development
cOrPOrate infOrmatiOn
dePartmental vice Presidents
DESIGN: COr CrEATIVE, INC., CHICAGO
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